Zuffa and the Fertitta brothers could be in for a legal battle from hell. Adam Swift confirmed last week that the UFC’s former main sponsor, Xyience, was rearing its ugly head once again in the legal world. According to the article, Xyience’s shareholders are now suing Xyience and its directors for “breach of fiduciary duty to the company’s shareholders”. The suit was recently amended to include Fertitta Enterprises and Zyen, two private companies owned by the Fertittas.
The suit primarily revolves around the infamous loan that the Fertittas extended to Xyience as a means to provide them with stability. The loan was explained as being a life preserver for the company, but as time passed, it was obvious that Zuffa was using Xyience’s status to obtain a much bigger loan. According to Rich Bergeron’s interview with Fightlinker.com, the Fertittas likely used the $12 million to keep Xyience above water long enough to obtain the $350 million loan for the UFC. Most lenders need some sort of proof of stability in a company, and what could be more convincing that a large sponsor that just inked a huge deal with your promotion?
Unfortunately for Xyience and its shareholders, the loan was repayable in only one-year at a 15% interest rate. If the loan couldn’t be repaid, all of its assets could be seized by the Fertittas. It’s still up for speculation whether this was an orchestrated default, but in the end, Xyience could not repay the loan and it was seized. Now, the Fertittas stand to make their money back and then some on the public auction of the company on April 1.
The most interesting piece of the case involves the actual use of the loan. As we’ve talked about before, the loan allegedly was used to pay a debt to the UFC, which is owned by the Fertittas. Confusing yet? The Fertittas used their own money to pay themselves back through Xyience, therefore increasing Xyience’s credibility as a stable company.
Now, the shareholders are suing due to a misrepresentation of the loan’s purpose. According to Adam Swift’s article, the Fertittas and Xyience’s directors stated that the loan would be used to meet Xyience’s capital needs and fuel its growth. Instead, the loan was immediately paid to the UFC, and Xyience defaulted. Swift sums up the charges here:
As a result the Fertittas are accused of aiding and abetting breach of fiduciary duty because of their alleged knowledge that the loan was not for its stated purpose, not in the best interest of shareholders and would result in a breach of the fiduciary duty between the directors and shareholders.
Amazingly, the story hasn’t gained as much ground as I thought it would. As I stated in my article chronicling the entire PRIDE, Xyience, and Zuffa situation, this could potentially cause problems for the Fertittas’ gaming license in Nevada, especially if they are found to have such brutal business practices that are deemed illegal.
The even bigger concern on the horizon is the possibility of it opening up a can of worms on the entire loan application process involved in obtaining the $350 million loan. Since Zuffa loaned Xyience $12 million, paid the debt that was owed by Xyience to the UFC, and then was able to obtain a much bigger loan from financial lenders because of the stability of Xyience, it does reek of suspicion.
As predicted, this is turning out to be case that could blow up into a huge scandal for the Fertittas and the UFC. Misrepresentation of the loan’s intent is only the tip of the iceberg in this case, and it could potentially become a horrendous problem in the future if the case opens the book on the entire deal. Want more details on the case? I HIGHLY suggest you listen to Rich Bergeron’s interview over at Fightlinker.com. You thought he was crazy, but now he sounds like Nostradamus.
Check out Adam Swift's article at Sherdog.com - UFC Owners Defendants in Xyience lawsuit
Also check out Fightlinker.com's interview with Rich Bergeron - Rich Bergeron's interview
FightOpinion.com article authored by myself explaining the affect on fans - PRIDE, Xyience, Zuffa, and you